Record valuations reached for M&A deals in 2021, says Bain

By Kate Birch
This year sees the highest total deal value on record, reaching more than US$5 trillion, as SPACs and VCs claim a larger portion of deals than ever before

It’s been a record-breaking year for dealmaking, reports Bain. Not only has 2021 seen the highest total deal value on record, reaching more than US$5 trillion, but strategic M&A, both corporate and add-on deals, is on track to reach its highest value in six years. 

It is a year unlike any other, however, due to what has become an increasingly complex M&A market with deals from financial investors, SPACs and VCs growing at 2-5 times the rate of strategic M&A, according to Bain’s M&A Report 2022. 

Bain’s research reveals that nearly all industries are showing signs of recovery from 2020, with value up and multiples rising. Strategic M&A multiples have hit an all-time high, with a median multiple of 16x EV/EBITDA. This requires corporate buyers to have a solid grasp on the M&A fundamentals, while also finding additional sources of value, says Bain.

Optimistic M&A outlook for 2022

Looking ahead, Bain is optimistic that the fundamentals of dealmaking will continue to attract buyers throughout 2022. In a Bain survey of 300 M&A executives, most buyers said they expect deal activity to stay the same or increase in the coming year. 

However, warns Bain, M&A executives should continue to monitor the impacts of a tightening fiscal policy and regulatory landscape, macroeconomic factors such as supply chain disruptions, and competition from financial investors with access to significant dry powder.

Bain & Company surveyed around 300 M&A executives about the critical focus areas for buyers looking into 2022, with talent retention and ESG sticking out as two top priorities.

When it comes to prioritising in 2022, critical focus areas for buyers will be talent retention and ESG. 

Talent is critical and ESG the next big thing

As the war for talent continues, dealmakers are increasingly aware of the importance of good talent management during the transition period that follows a deal. 

But while M&A executives cite talent retention as a leading driver of deal success in today’s market, they say that retention is becoming more challenging than ever, according to Bain research.

The executives Bain surveyed see two critical factors to retaining talent, the first by establishing a strong and compelling vision for the future of the combined company, and the second, defining clear roles for employees in the new organisation. Bain’s research reveals that too often companies focus only on financial retention packages without addressing these broader considerations.

According to Bain, ESG is the next big thing in M&A. And while corporate acquirers have yet to put a significant emphasis on ESG, ranking it lowest on their list of diligence priorities today, Bain’s research reveals that M&A execs expect this to change in the near future. 

Winning dealmakers will evolve their diligence and integration playbooks, say Bain, linking their broader corporate strategy to ESG for a given deal and leveraging ESG as a component of the asset’s value creation plan.   

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